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Unfair Competition

In business, where small companies work hard to succeed, unfair competition can create big problems. This article is about how small-business owners can face unfair competition. Here, we will focus on unfair trade practices, which impact businesses and business owners. Consumers injured by deceptive trade practices generally seek the remedies provided by consumer protection laws.

Unfair Competition: What Is It?

Unfair competition is a deceptive or wrongful business practice that harms consumers or a business. Unfair competition is a business tort designed to stop unfair practices from creating a competitive advantage. Federal and state laws, like antitrust laws, protect businesses' efforts to stand out from their competitors.

Unfair competition applies to all levels of the supply chain, from former employees to distributors.

Where Do Unfair Competition Laws Originate?

Congress created the Federal Trade Commission (FTC) to protect consumers. The FTC is critical in investigating and taking legal action against unfair business practices. This helps level the playing field for small businesses and ensures they have a fair chance to compete.

These practices can undercut the fair market and lead to legal action. Both federal and state laws work to protect against these unfair competition practices. Federal laws like the Lanham Act allow business competitors to sue advertisers for false advertising.

States have also enacted laws regulating everything from misappropriation to counterfeit goods. Many states have adopted the Uniform Trade Secrets Act (UTSA). The UTSA defines and protects trade secrets. State laws protect almost any information that gives a business a competitive edge in the same industry.

Examples of Unfair Competition

Unfair competition is an umbrella term encompassing several types of economic torts. Below are forms of unfair competition.

  • Trademark Infringement: This is like borrowing someone else's idea for your benefit without asking. It's an intellectual property violation where someone uses a logo, symbol, or name that belongs to another business. An example would be using the Starbucks® trademark on a sign or coffee cup made by a competing coffee roaster.
  • Unauthorized Substitution of One Brand of Goods for Another: This is also known as "bait and switch." Imagine you make a special toy that everyone loves. Let's say someone else tries to trick people into entering their store by showing pictures of your toy. But they don't have any of your toys to sell. They want to get more customers to their store. As the toy maker, you can take legal action against this tricky seller for using your toy's pictures to make money. It's a way to protect your toy and your business.
  • Misappropriation of Trade Secrets: Someone takes or uses confidential information from a business without permission. An example of this is stealing a fried chicken competitor's "secret recipe" and using it for monetary gain.
  • False Representation of Products or Services: A business presents its offerings in a way that doesn't match reality. It's like promising something exciting and unique, but when you get it, it's different from what you expected. One common way this happens is through misleading product warranties or guarantees.
  • False Advertising: A business tries to sell its products or services by giving out incorrect or misleading information. It's like when you see a commercial for a burger that looks huge and delicious, but when you order it, it's much smaller and doesn't taste as good as it made it seem. False advertising can trick people into buying things that aren't as great as they thought.
  • Trade Libel: This is like spreading harmful rumors about a business to hurt its reputation. Trade libel is a serious matter because a company's reputation is valuable.
  • Price Discrimination: This happens when a company charges different prices for the same product or service. It's like if you and your friend go to a store to buy the same toy, but the store charges you more because you're willing to pay a higher price.
  • Passing Off: The misrepresentation of a product or service that belongs to another business. For example, a local café uses a logo and signage like a famous international coffee chain to attract more customers.

Remedies

Courts have many tools to prevent the practice of unfair competition and compensate victims. Several states, including California, allow monetary damages and injunctive relief where necessary.

Businesses harmed by unfair competition can sue for injunctive relief. Courts can issue an "injunction." Injunctions are like a legal "stop sign" that a court can use to stop someone from doing a specific action. These remedies may be available in state and federal court.

Damages Award Calculation

Courts take several factors into account when deciding a damages award, including:

  • Number of violations
  • Nature and seriousness of the misconduct
  • Length of the misconduct
  • Actual harm done to the plaintiff
  • Willfulness of the defendant's misconduct
  • Defendant's assets, liabilities, and net worth

Legal Help With Unfair Competition Practices

You may want legal advice if you are a small-business owner accused of unfair competition or think another business violates your rights. A business and commercial law attorney will help you navigate this complex area of law and answer your questions.

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